Crisis investing in emerging and frontier markets is based on buying quality companies after severe market dislocations, when currencies, equities, and investor sentiment have collapsed. The strategy focuses on countries that have gone through financial or political stress, where strong businesses can trade at unusually low valuations.
The fund discussed is concentrated in markets that have recently experienced crises. Its largest positions include:
- Uzbekistan: 29%
- Argentina: 17%
- Egypt: 16%
- Turkey: just over 7%
- Nigeria: 7.5%
- smaller positions in Pakistan and Sri Lanka
- about 10% in cash
The fund is not strictly a frontier-market fund. The focus is crisis-driven investing. Many of the markets that currently fit the strategy happen to be frontier or emerging markets because those countries often experience idiosyncratic crashes that are not fully correlated with developed markets.
Why crises create opportunity
The core investment thesis is to buy during or after a crisis, when investors are selling indiscriminately.
During a crisis:
- the currency often falls sharply
- the stock market drops
- valuations become extremely low
- foreign investors leave
- local sentiment turns negative
- quality companies can trade at distressed prices
The Asian financial crisis is a key example. In Indonesia, the market crashed in 1997 and hit bottom around nine or ten months later, after economic turmoil and political unrest. At that point, many investors wanted nothing to do with Indonesia or Southeast Asia.
In hindsight, that was one of the best times to buy.
Backtesting showed that around 10 Indonesian stocks listed at the time became 100-baggers in US dollar terms if bought at the bottom of the Asian financial crisis. One example was Astra International. Buying Astra at the bottom and holding until the present would have produced more than 200 times the original investment in US dollar share-price terms, excluding dividends.
The lesson is that crisis alone is not enough. The best outcomes come from buying quality companies with strong management and good shareholder alignment at extremely low prices.
The investment filter: people, structure, value
The strategy uses three main filters:
- People: good management, good owners, and credible controlling shareholders.
- Structure: alignment between majority shareholders, management, and minority shareholders.
- Value: very low valuations, usually available only during crisis periods.
The same framework also determines when to sell.
A sale may happen if:
- management changes in a negative way
- a new controlling shareholder creates concerns
- related-party transactions become problematic
- private family assets are injected into the company on poor terms
- valuation targets are reached
- the thesis is no longer attractive
If a company remains well managed, aligned, undervalued, and growing, the preferred approach is often to hold and let management compound value.
Argentina: cheap assets and crisis-tested companies
Argentina represents about 17% of the fund.
The initial attraction was a major market collapse after the unexpected election of Alberto Fernández. The Merval index, measured in gold terms, returned to levels last seen around 2002. The market’s cyclically adjusted price-to-earnings ratio fell to around three or four times, which is close to crisis-level valuation territory.
The market appeared to be priced as badly as during the 2002 crisis, but businesspeople on the ground said the situation was not as severe as 2002. That gap between market pricing and reality created an opportunity.
Argentina is a difficult market, but it has companies that know how to operate through inflation, devaluation, capital controls, and policy instability. Management teams are used to crises because they have had to navigate them for decades.
This can become a competitive advantage. In countries where uncertainty is constant, established companies can strengthen their position because new competitors do not want to enter the market.
One example discussed was Mirgor, an Argentine company involved in cellphone assembly and manufacturing. A major competitor left the market, allowing Mirgor to buy that competitor for one dollar plus debt and increase its market share substantially. The company also had cash and could look for more acquisitions when few buyers were active.
The thesis is not that Argentina is stable. It is that the instability is already priced into some assets, while strong companies can survive and even gain market share.
Argentina’s natural resources angle
Argentina also has large natural resource potential. It has agricultural land, minerals, oil, gas, and major shale resources.
The country has been encouraging investment in oil, gas, and mining. This is important because Argentina may be more open to foreign investment in natural resources than some countries usually seen as safer or more premium jurisdictions.
The government extended import protection for locally assembled cellphones for another 20 to 25 years. It has also encouraged oil and gas investment, including development around the Vaca Muerta shale formation in western Argentina, described as the second-largest shale oil and gas deposit in the world.
One Argentine holding mentioned was Vista, an oil and gas company. A pipeline from the shale region to Buenos Aires was expected to cost around $1 billion and open in about 18 months.
This suggests Argentina is not behaving like a purely anti-business or anti-resource-development country. It remains risky, but some policies may be more investor-friendly than the market price implies.
Egypt: cheap valuations and slow reforms
Egypt represents about 16% of the fund.
The initial attraction came after the 2016 currency devaluation, when the Egyptian pound lost about 50% of its value. The exchange rate moved from around 7 or 8 Egyptian pounds per US dollar to around 17 or 18.
The change had an immediate effect on business sentiment. Before the devaluation, company executives were worried about the exchange rate and the difficulty of obtaining US dollars. After the devaluation, the mood improved because businesses could access foreign currency more openly and plan again.
Egypt remains cheap, with the market trading around five or six times cyclically adjusted earnings. Reforms are happening, though not as quickly as in some other markets.
Important reform areas include:
- reduced energy subsidies
- freer oil and gas prices
- reduced electricity subsidies
- natural gas development
- mining law reform
- foreign investment in exploration
- efforts to become a gas exporter
- energy deals with Europe and Israel
- nuclear cooperation with Russia
- Chinese involvement in major infrastructure projects
Egypt has serious structural challenges. It has more than 100 million people, a fast-growing population, debt pressure, and a need for rapid economic growth. Subsidies on bread and fuel remain politically sensitive.
Still, the direction of reform is meaningful. Egypt is trying to use its own gas resources more effectively, reduce dependence on imports, expand energy exports, develop mining, and attract investment.
Egypt holdings
One major Egyptian holding is GB Auto, which has about 24% market share in passenger cars and a large presence in commercial vehicles, tires, and auto-related businesses.
GB Auto also has a significant non-bank financial services business, including leasing, factoring, microfinance, and related services. That part of the business has been growing quickly.
The company was described as trading at around three times earnings with a dividend yield of about 12%. It also has strong family alignment because the family’s main wealth is tied to the company.
Another holding is TransGlobe Energy, a Canadian-listed oil and gas company operating in Egypt. The investment thesis is linked to Egypt’s more favorable oil and gas laws and the introduction of more advanced drilling techniques, including horizontal drilling.
A key change in Egypt was the appointment of officials with private-sector experience in the ministries or authorities responsible for licensing. That helped create a more business-friendly environment for oil, gas, gold, and mining companies.
Turkey: crisis valuations with industrial strength
Turkey represents just over 7% of the fund.
Turkey appeared on the fund’s valuation screens in 2018, after the lira crisis. The currency fell sharply, stocks dropped, and the market became extremely cheap. The Turkish BIST 100 index also looked close to a double bottom when measured in gold terms, similar to Argentina.
Turkey’s macro environment is difficult. Inflation is high, the lira has depreciated sharply, and the country imports much of its energy. Everyday life has become hard for ordinary Turkish households.
But Turkey also has another side: an industrial, export-oriented economy with companies that operate across Europe, Central Asia, the Middle East, Africa, and South Asia.
Turkey is highly industrialized. Many Turkish cities have large industrial parks, modern factories, and companies that export to Europe and beyond. Turkish companies are used to volatility, inflation, currency weakness, and ambiguous business environments.
This makes Turkish management teams battle-tested.
Turkish companies and Russia exposure
One Turkish holding mentioned was Arçelik, a white-goods company that makes appliances such as refrigerators and air conditioners.
Around half of its business is typically exports or production outside Turkey, while the other half is domestic. The company has expanded into countries such as Bangladesh and Pakistan, where population growth supports long-term demand.
Arçelik was also described as a natural buyer for Whirlpool’s Russian assets after Western companies began exiting Russia. If acquired at a discount, such assets could strengthen Turkish companies in Russia.
Another holding mentioned was Anadolu Efes, a brewery with a major Russian presence through a joint venture with AB InBev. After Western brewers such as AB InBev, Heineken, and Carlsberg moved to exit Russia, Anadolu Efes became one of the few foreign brewers still positioned there and may be able to acquire assets at distressed prices.
This reflects a broader effect of sanctions: some assets are being transferred from Western companies to businesses from countries still willing to operate in Russia, including Turkey.
Turkey’s broader geopolitical position is also important. It has kept ties with Russia, Ukraine, and the West. It sells weapons to Ukraine, negotiates food and energy deals with Russia, attracts Russian tourists, and positions itself as an energy transit hub.
This creates risk, but also opportunity.
Why Turkey may be misunderstood
Western investors often focus on Turkey’s weak currency, inflation, and unorthodox central bank policy. Those risks are real.
But the companies themselves may be stronger than the macro headlines suggest.
Turkey has:
- strong industrial companies
- experienced exporters
- high-quality management teams
- strong local analysts
- business experience in emerging markets
- a strategic location between Europe, Asia, and the Middle East
- energy transit importance
- companies used to operating through crises
The investment case is not that Turkey has good macro policy. It is that some Turkish companies trade at crisis valuations despite being globally competitive and professionally managed.
Nigeria: huge potential, severe constraints
Nigeria represents about 7.5% of the fund.
The investment started after the naira devalued by around 30% to 40% in 2016. Nigeria became one of the cheapest markets in the world on a cyclically adjusted earnings basis. Stocks had fallen heavily, and the market had also suffered from earlier problems after the global financial crisis.
Nigeria has more than 200 million people and a highly entrepreneurial population. It is the largest economy in West Africa and has significant long-term potential.
But the problems are large:
- capital controls
- difficulty getting money out
- oil dependency
- weak infrastructure
- unreliable electricity
- low growth
- high population growth
- falling per-capita income
- policy uncertainty
- corruption or mismanagement
- limited reform momentum
The fund has been invested in Nigeria for several years and was in the red for a long time before seeing improvement. The companies are cheap, but the macro situation has been frustrating.
The thesis is based on owning a small group of companies with strong management, good shareholder alignment, strong market positions, and very low valuations.
Nigeria’s reform potential
Nigeria’s economy has become less dependent on oil and gas over the past eight years, though much more reform is needed.
One positive sign is the return of non-oil sectors such as agriculture. Nigeria was once a major palm oil producer before crude oil became the dominant economic focus. The palm oil industry is now recovering, and one of the better-performing Nigerian stocks has been a palm oil plantation company.
Currency restrictions remain one of the biggest obstacles. They discourage foreign portfolio investment and make it hard for investors to commit more capital.
A possible catalyst is political change. The leading presidential candidates discussed all had private-sector experience, and there was an expectation that exchange-rate reform could happen within a year.
Another possible catalyst is the Dangote petrochemical and refinery complex. Nigeria exports crude oil but imports refined fuel because of inadequate refining capacity. Local fuel is subsidized, costing the government billions of dollars per year.
If domestic refining improves and fuel subsidies are reduced, the savings could support infrastructure, education, or the electricity system. That would be a major change for Nigeria.
Currency controls and blue-chip swaps
Currency controls are a central issue in markets such as Argentina and Nigeria.
In Argentina, investors can use a blue-chip swap structure. This involves an asset traded both locally and in a financial center such as New York or London. The investor buys the asset in one market, transfers it, and sells it in the other market to move money across borders.
This structure was described as legal in Argentina after a Supreme Court ruling more than a decade ago.
Nigeria is more difficult. The capital-control problem is one reason the fund does not allocate more, despite very low valuations.
Cash and smaller positions
The fund also has smaller positions in Pakistan and Sri Lanka. Sri Lanka is of interest because the market crashed severely, creating a potential crisis-investing opportunity.
The fund held about 10% in cash, mainly because additional money had recently come in from existing investors.
Practical takeaways
The crisis-investing approach is not about buying every cheap market. It is about finding quality companies in crisis-hit countries where panic has driven valuations far below long-term value.
The strategy looks for:
- severe currency and equity-market dislocations
- low cyclically adjusted valuations
- quality companies
- strong management
- good shareholder alignment
- limited related-party risk
- businesses that can survive inflation and instability
- catalysts such as reform, devaluation, resource development, or political change
The main risks are obvious:
- capital controls
- currency depreciation
- political instability
- weak institutions
- corruption
- related-party transactions
- poor liquidity
- external shocks
- policy reversals
- inability to exit
The markets discussed—Argentina, Egypt, Turkey, Nigeria, Uzbekistan, Pakistan, and Sri Lanka—are not easy markets. They are risky by design. But that is also why the valuations can become extreme.
The key is to separate broken countries from broken prices. A country can be unstable while some of its companies remain resilient, well managed, and deeply undervalued.
